Under what circumstances is the demand curve downward-sloping?
A)When the good is not a Giffen good.
B)When the good is a Giffen good.
C)When the good is an inferior good and the income effect outweighs the substitution effect.
D)The demand curve is always downward-sloping.

Question

Quizplus · Accepted Answer

The demand curve is downward-sloping under normal conditions because of the law of demand, which states that as the price of a good increases, the quantity demanded decreases. Exceptions to this may occur with Giffen goods or inferior goods where the income effect outweighs the substitution effect, but these are not the usual circumstances. The demand curve is downward-sloping when the price of a good increases, which leads consumers to decrease their quantity demanded due to the substitution effect. In most cases, the income effect also leads to a decrease in quantity demanded as the price increase makes the consumer feel relatively poorer. However, in the case of a Giffen good, the income effect can be so strong that it overrides the substitution effect and leads to a positive relationship between price and quantity demanded. Additionally, when a good is inferior and the income effect outweighs the substitution effect, the demand curve can be upward-sloping. Therefore, the only circumstance where the demand curve is always downward-sloping is when the good is not a Giffen good.

Under What Circumstances Is the Demand Curve Downward-Sloping